Jobs Report Indicates Gradual Improvement

Oct 26, 2012

A recent Labor Department report indicated that the number of initial applications for jobless benefits dropped slightly during the week ending on October 20, and the slight decline was interpreted by many

A recent Labor Department report indicated that the number of initial applications for jobless benefits dropped slightly during the week ending on October 20, and the slight decline was interpreted by many market experts as indicating modest improvement. The strong labor market could be important to companies that use forecasting software.

Dropping Claims

The Department of Labor data revealed that unemployment claims fell by 23,000 for the week to reach a level of 369,000, down from the previous reading of 392,000. This decline preceded several weeks of fluctuating jobless applications.

The weekly figure was largely in-line with the median forecast for a decline to 370,000 that was predicted by economists participating in a Bloomberg poll. A total of 48 of these market experts contributed to the survey, and provided estimates ranging from 350,000 to 382,000.

The four-week moving average of these applications, which is considered by many to be a more stable source of data for the labor market, increased to 368,000 during the week ending October 20 from its previous level of 366,500. Before the start of the most recent quarter, this figure averaged 375,500.

In addition, Labor Department data revealed that the nation's employers added 114,000 to payrolls in September after creating 142,000 positions in August. In September, the jobless rate declined to 7.8 percent from the previous month's 8.1 percent.

Forecasting Implications

According to the news source, the stabilizing figures for jobless claims means that employers are keeping their payrolls stable even amid worldwide economic concerns ranging from the euro zone fiscal crisis to the threat of the pending fiscal cliff.

As demand is a crucial contributor to revenue and earnings, companies may benefit from the labor market data when they design their budget and participate in forecasting. If the signals that demand is strong are indeed accurate, this trend could prove beneficial for both the labor market and also corporate earnings.

Companies have generated most of their profit growth in recent years through the process of cost management, and many market experts have speculated that this strategy will only help grow earnings for so long. Higher demand will be needed in order to create more sustained improvement in this corporate metric.

Business Investment

More economic data that could prove helpful to companies planning their budgets is a recent U.S. Commerce Department report indicating that the demand that businesses have for capital items such as computers changed little in September, the media outlet reports.

The data provided by the government agency revealed that corporate orders for non-defense capital goods excluding aircraft displayed no substantial change during the month, after rising only 0.2 percent in August, which was lower than the predictions of market experts, according to the news source.

This data that companies are not making substantial purchases of this capital equipment could mean that they are already realizing substantial productivity and that they see limited opportunity for further gains in this area.

Slow Growth

"The reality is we are operating in a slow-growth environment in the near-term," Dow Chemical Co. chief executive officer Andrew Liveris wrote in a statement during this week, according to the media outlet. "While these actions are difficult, they demonstrate our resolve to tightly manage operations -- particularly in Europe -- and mitigate the impact of current market dynamics."

Companies will need to keep the aforementioned factors of stabilizing labor markets, low capital expenditures and decelerating growth in mind in order to engage in effective forecasting.